I have to be honest if I was a betting man I would have put all my money on a 0.75% cut. Everyone wanted a 1% cut, journalists and experts predicted a 0.5% and I thought the best the BoE would do would meet in the middle at 0.75%.
However they surprised us all. A 1.5% cut is massive considering the base rate was 4.5%. This is a 33.3% cut in interest rates. The BoE must have sight of some seriously negative data.
At least the BoE are stepping in all be it a bit too late. Personally I save over £100,000 per year on this announcement. I have spoken to a few landlords and they are all saving as their mortgages are on base rate trackers.
SO what does this mean for the property market? Well I hope the lenders pass on these rate cuts to new products. I have seem bank margins increase from 1.75% above base to 2.25% above base. If we assume that they keep to this margin we should see borrowing rates go to 5.25% as a maximum. If competition sets in between the banks then we will see sub 5% rates.
The yields now possible from the low end can be up to 20% as property prices may just have bottomed out. This property price crash could be the quickest in history and we may only see the cheap prices until end of January 2009.
The bargains may not hang around long. If you were thinking of buying then I think you need to stop thinking and start buying!
Watch out for another rate cut of 0.25% to 0.5% for Xmas!
Posted on: 6th Nov 2008